Why Nvidia Stock Plummeted This Week
Key Points
Nvidia stock lost ground as investors traded on AI-valuation-bubble concerns.
News that Michael Burry's hedge fund had purchased put options against the stock also factored into sell-offs.
Investors became broadly more risk-averse this week as fresh bearish macroeconomic data hit the news wire.
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Nvidia (NASDAQ: NVDA) stock got hit with one of its biggest pullbacks this year over the last week of trading. The company's share price closed out the week down 7.1%. Meanwhile, the S&P 500's level declined 1.6%, and the Nasdaq Composite's level declined 3%.
Nvidia stock had been down as much as 11.6% on the week prior to seeing some substantial recovery momentum late in Friday's trading. While the company's share price has recently seen a valuation pullback, it's still up 40% year to date.
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Image source: Nvidia.
Nvidia stock slips amid valuation concerns and Michael Burry's bearish bet
Some top analysts and investment banks have recently been raising the alarm regarding valuations for artificial intelligence (AI), and the past week saw AI-bubble concerns play a big role in shaping valuation for companies concentrated in the space and the broader market. Adding to the bearish momentum for Nvidia, Scion Asset Management disclosed that it had purchased put options with an approximate notional value of $187 million on Nvidia stock.
Scion Asset Management is led by Michael Burry, who is one of the most high-profile investors in the world today. As the central player behind the 2008-financial-crash-era short trades that were the basis for The Big Short book and its film adaptation, bearish bets from Burry can carry a lot of weight on Wall Street.
Can Nvidia's valuation defy a rise in bearish macroeconomic indicators?
In addition to increased caution about AI valuations, some bearish macroeconomic news prompted pullbacks across the broader market this week. Challenger, Gray & Christmas published a report on Thursday showing that U.S. companies had laid off over 153,000 employees in October -- marking the highest monthly level of layoffs in 22 years. The next day, the University of Michigan released its November update measuring consumer confidence in the country and published data showing that the tracking index had weakened to its weakest level since 2022.
Thanks to hopes that Democrats and Republicans could soon reach terms on a spending deal that would bring an end to the government shutdown, Nvidia stock was able to recover from big sell-offs early in Friday's trading. For better or worse, it's likely that macroeconomic news will play a big role in shaping the AI leader's valuation over the next year.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
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